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Sports Direct race against the clock to appoint auditor as government intervention looms

Troubled retailer Sports Direct faces having an auditor appointed by the government if it does not find one by the end of today, as it struggles to replace Grant Thornton ahead of a legal deadline.

18th Sep 2019
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Mike Ashley’s business, which filed its latest set of accounts without an auditor, has been turned down by each Big Four firm in its search to appoint an auditor capable of picking through its books.

The firm, which declined to comment on the matter, was required by law to have a new auditor in place by the end of its annual general meeting last week, but no agreement was made.

In an unprecedented development, Ashley has been forced to ask the government what would happen if Sports Direct becomes the first listed business to fail to appoint an auditor.

After 11 years of service, Grant Thornton quit in August as the turbulence and negative publicity around the firm became exacerbated by accounting irregularities and a £605m unpaid tax bill handed down by the Belgian authorities.

Grant Thornton said it was shedding the company “following a review of our client portfolio”, but is also under pressure itself from regulators following a string of botched audits.

Acrimonious scenes at shareholder meeting

Sports Direct’s shock Belgian bill was revealed in the delayed company accounted published in July, in which Ashley said the complexity and size of the FTSE 250 firm meant only one of Deloitte, PwC, KPMG or EY would have the means to handle the account.

By law, the firm was required to appoint a new auditor at its annual accounts meeting but failed to do so amid acrimonious scenes in which almost a quarter of independent shareholders voted against Ashley’s re-election as director.

Business Secretary Andrea Leadsom has a power in S490 of the Companies Act 2006 to appoint an auditor to a public company, which arises if an agreement is not met at the AGM.

As the AccountingWEB members pointed out last year, in 2003 Deloitte resigned as auditor of animal testing group Huntingdon Life Sciences following animal rights protests, forcing the government to step in. Outside that example, the power has not been excised by the government on a listed company.

Public tender process

Sports Direct must alert the Department for Business, Energy and Industrial Strategy (BEIS) via a notice to Companies House if it has failed to appoint a replacement.

“In order to propose an auditor to the shareholders, the directors will usually need to complete a public tender process, which in the case of Sports Direct has yet to conclude,” a BEIS spokesperson told AccountingWEB.

A public tender is needed at least once every 10 years and should result in a choice of at least two auditors being given to the shareholders, with a stated preference.

Sky News has reported that Sports Direct’s senior independent director and chair of its board audit committee Richard Bottomley has attempted to talk the Big Four firms around, with little success.

Deloitte is on record as conducting historic tax and advisory work for Sports Direct, and EY has flagged conflict of interest concerns given its position as administrator to House of Fraser.

PWC has told the retailer it does not want to take on the job following the numerous audit-related fines it has collected in recent years after taking on risky clients such as furniture retailer BHS.

Ashley has said previously that KPMG cited “an existing portfolio of clients” as reasons behind its refusal.

He is steadfast in his view that only a Big Four firm can conduct the audit, stating Sports Direct has grown too large for a smaller firm to manage.

The Evening Standard reported last month that MHA Macintyre Hudson was in talks to replace Grant Thornton after BDO is understood to have turned down the audit.

“We have had initial conversations, not with Mike Ashley but his emissaries. We expect to take part in the tendering process, although we want to know the full reasons why Grant Thornton quit,” MHA Macintyre Hudson chairman Rakesh Shaunak said.

Despite the company’s woes, Ashley has continued making high-risk bets on high street names despite poor sales and footfall. Ashley has used the Sports Direct vehicle to buy stakes in Game, Debenhams, and Evans Cycles. The company also rescued department store House of Fraser and struggling clothes retailer Jack Wills.

Replies (3)

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Hallerud at Easter
By DJKL
18th Sep 2019 16:17

So not really any keen aspirants chasing the gig chanting "Gizza job! I can do that"

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By tedbuck
19th Sep 2019 11:16

So what happens if no-one is prepared to take it on?

If the Government 'appoints' an auditor and the auditors says "No" where do they go from there?

Is this the clarion call for a new body - 'The Official Auditor' - now there's an interesting thought. With the great depths of experience in HM Treasury I can quite see them making an excellent job of an audit in the real world. After all they have been critical enough of Auditors in the real world. And, of course, they would have no-one to call them to account. HMG take note.

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By AndrewV12
24th Sep 2019 12:53

Extract above
'Mike Ashley’s business, which filed its latest set of accounts without an auditor, has been turned down by each Big Four firm in its search to appoint an auditor capable of picking through its books.'

Turned down by the big four, the temptation is to say after a string of botched audits (see article above) they will put their name to anything, but maybe they have increased the Quality of their Audits and no longer take on any old client or sign any Audit report, maybe risk has over taken reward.....who knows.

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